What hurricane? Oil service rises

Merchant energy sees upside as El Paso recovers

By

LisaSanders

NEW YORK (CBS.MW) - As Tropical Storm Isidore prepared to slam the Louisiana and Mississippi coasts Wednesday, investors shrugged off concerns about a prolonged delay in drilling activity and took advantage of the group's latest dip.

By afternoon, Isidore was about 250 miles south of New Orleans and heading north at about 11 miles per hour. The storm is expected to strengthen over the next day.

The benchmark PSE Oil Service Index
OSX, -1.00%
rose by 4.8 percent to close at 74.58. Investors bought into offshore drillers Ensco International
ESV, -1.64%
which rose 3.4 percent to close at $23.50, and Noble Corp.
NE, -1.96%
higher by 4.4 percent to close at $29.96.

Buying in the group took place even as CIBC lowered estimates for offshore drillers because a rebound in drilling activity has been slower than expected and because of a decline in activity in the North Sea.

"Our estimates are now below the Street and we believe that consensus estimates will gravitate toward our numbers," wrote the brokerage. CIBC named Ensco its top pick "as exposure to the Gulf of Mexico will drive estimates in 2003."

Jim Wicklund, oil service analyst at Banc of America, has the same outlook on the group as CIBC.

"It is becoming better understood that the current consensus estimates for many oilfield services companies are too high for both the September quarter and the December quarter as well," Wicklund wrote Wednesday. Wicklund reduced earnings estimates for almost all of the stocks he covers last week.

Integrated oils, producers

Integrated oil stocks and independent producers were also on the rise. The CBOE Oil Index
OIX, -11.39%
added 1.5 percent to close at 258.17 as ExxonMobil
XOM, -1.14%
ConocoPhillips
COP, -1.99%
and ChevronTexaco
CVX, -1.73%
closed in positive territory.

In other refiner news, Tesoro Petroleum
TSO, +0.00%
closed at $3.05, up 30 cents, or 11 percent after announcing it has amended the terms and conditions of its $1.275 billion credit agreement.

Financial institutions involved in the agreement voted to suspend coverage tests based on trailing four quarters of EBITDA (earnings before interest, taxes, depreciation and amortization) for the next four quarters. Other amendments included an increase in the amount of assets the company must sell, and limits on capital spending. Tesoro also agreed to pay certain fees and increase the borrowing rate.

In commodities trading on the Nymex, November crude dropped by 13 cents to settle at $30.64 a barrel, and October natural gas shed 24.8 cents to settle at $3.494 per million British thermal units. See Futures Movers.

Merchant energy

After two days of intense selling, shares of merchant energy stocks brightened with the much-battered El Paso
EP, +10.26%
adding 33 percent at the close.

Investors had bailed out of El Paso after a Federal Energy Regulatory Commission administrative law judge found that the company helped manipulate power prices in California by withholding natural gas supply during the state's energy crisis. See latest story. Shares settled at $7.05, up $1.75. The stock was the second-most active issue on the New York Stock Exchange.

Williams
WMB, -1.62%
added 17.6 percent to close at $2.07 and Mirant
MIR, +20.00%
rose by 4.4 percent to close at $2.12. The Amex Natural Gas Index
XNG, -2.90%
had risen by 3.7 percent at session's end, and the Philadelphia Utility Index
UTY, -1.23%
was up 2 percent to close at 244.56.

Meanwhile, Dynegy
DYN, -1.40%
was down 3.3 percent to close at $1.16 a share after announcing Tuesday it would pay a $3 million fine to settle with the Securities and Exchange Commission over the issues of a $300 million financing known as Project Alpha and its use of round-trip trades.

Also Tuesday, Dynegy admitted that some of its marketing and trading employees provided inaccurate data about natural gas trades to energy industry publications. See story.

And Duke Energy
DUK, -0.48%
lost 4.6 percent to close at $18.35 after announcing plans to offer 52 million shares of common stock to the public. Based on Tuesday's closing price of $19.24, the proceeds from the offering would be approximately $1 billion, which the energy company plans to use to repay debt.

"We have mixed feelings about Duke's proposed...offering," wrote Morningstar analyst Paul Larson. While he supported the share issuance for the purpose of reducing debt, Larson wrote: "this capital comes with a high cost and will dilute current shareholders, since the stock has lost roughly half its value over the past year."

Meanwhile, TXU
TXU
shares added $1.42 to close at $41.14. Standard & Poor's revised the company's outlook to negative from stable, citing a decline in the credit quality of TXU Europe. The unit generates about 33 percent of TXU's income and supports more than 50 percent of all of the company's customers.

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